Loonie up ahead of budget

TORONTO (CP)— The Canadian dollar advanced Tuesday morning while traders looked ahead to the release of the federal government’s new budget.

The loonie was ahead 0.14 of a cent to 90.6 cents US as the U.S. dollar backed off amid the other major market event of the day — congressional testimony by the new chair of the Federal Reserve.

Finance minister Jim Flaherty tables his new budget at 4 p.m. EST with surprises expected to be minimal.

“The government is expected to stay the course on its path to budget surplus, opting to set the stage for new initiatives to be introduced once the government is back on positive fiscal footing in 2015/16,” said RBC Economics economist Laura Cooper.

“With fiscal performance year-to-date showing a modest deterioration from the same period in fiscal year 2012-13, expenditure restraint is likely to supersede the introduction of new initiatives.”

Meanwhile, Fed chairwoman Janet Yellen said that she expects a “great deal of continuity” with her predecessor, Ben Bernanke.

Yellen signalled that she supports his view that the economy is strengthening enough to withstand a pullback in stimulus but that rates should stay low to fuel further growth.

So far, the Fed has moved twice over the last two months to cut its bond buying program by a total of US$20 billion to $65 billion and analysts generally expect the Fed to continue cutting by $10 billion every meeting.

Yellen’s remarks to the House Financial Services Committee have been highly anticipated, particularly with U.S. employment data for January falling well short of expectations last week and fresh worries about how emerging markets are dealing with Fed tapering.

Traders are also braced for what could be some further negative news from China after data last week showed the manufacturing sector in the world’s second-biggest economy still expanding but at a slower pace.

Meagre trade growth is expected when import and export data is released Wednesday. Inflation data comes out the next day and Barclays Research said it expects inflation to moderate to 2.3 per cent year over year in January from 2.5 per cent in December, thanks in large part to lower food inflation.

On the commodity markets, March crude on the New York Mercantile Exchange edged up eight cents to US$100.14 a barrel.

March copper was down a cent to US$3.21 a pound while April bullion moved ahead $14.50 to US$1,289.20 an ounce.